Reaping the Rewards of California’s New Solar & Energy Storage Mandate for Commercial Buildings

As of January 2023, California will require new commercial buildings to include solar and energy storage, which creates an opportunity for building owners to lower their operational costs, meet sustainability goals, provide electricity backup and boost their energy security. 

The measure was enacted by the California Energy Commission (CEC) as part of the 2022 building code. It’s the first of its kind in the nation, and aims to help California reduce its dependence on fossil fuels, meet its aggressive climate goals and address the number of wildfire-related electricity blackouts in the state.

Distribution Centers and Warehouses Can Benefit from Mandate

The payback on the purchase of these systems can be five years or less, said Brian Gallagher, project development executive for the Qcells Distributed Energy team.

Owners of commercial buildings can easily realize six-figure savings in the first year for the combined energy savings of a solar plus storage system, he said. Warehouses and distribution centers are especially well-suited to benefit from the new mandate.

Manufacturing operations, which are often co-located with warehousing, also have the potential to reap savings from onsite clean energy.

Lowering Costs with New Tax Incentives

The cost of the solar and storage required by the CEC mandate can be lowered by tax incentives available in the new Inflation Reduction Act.

“For California business owners and real estate developers, this could be a good starting point to secure affordable energy for the long-term to counteract higher utility bills today as well as help achieve decarbonization goals,” said Sophie Lee, energy service development manager for the Qcells Distributed Energy team. Installing solar and energy storage can provide commercial property owners with a multitude of benefits, ranging from bill savings to backup power during outages. 

What’s more, adding solar and storage can increase property values by reducing long-term energy costs, Lee said. 

Sizing Solar and Storage Systems is Key

Properly sizing the systems is critical, and Qcells provides evaluations to determine the best system size. In general, systems that are larger than the minimum required will make the most of companies’ investments.

For a warehouse under construction, builders and developers should include about 1 MW of solar for every 100,000 square feet of available roof space. Depending on how much energy the building needs, the optimal solution is likely 1 MW to 4 MW of solar, plus a 2 MWh battery energy storage system, said Gallagher. The exact solution depends on the building’s load profile and utility costs.

Decreasing Capital Investments, Lowering PPA Costs

Tax credits from the new IRA could decrease a building owner’s capital investment in the solar and storage systems in the first year by at least 30%, and by as much as 50%. The tax incentives can be above 30% if the project is located in a disadvantaged community, energy communities, or if it utilizes equipment that’s manufactured in the U.S.  What’s more, provisions of the IRA can lower the rate of a power purchase agreement (PPA) when a tax equity investor monetizes IRA tax benefits. 

The IRA incentives might reduce a 10 cent/kWh PPA rate to about 6 cents/KWh, said Gallagher, noting that certain provisions of the IRA are still being worked out by the U.S. Treasury Department.

In addition, building owners can increase rents when solar and storage are included.

“A Target or Whole Foods or Amazon may pay higher rents for a facility that already meets their ESG (environmental, social and governance) goals and has lower operating costs from cheaper and cleaner onsite solar energy,” said Gallagher.

Buildings with Solar and Storage Appeal to Investors

The ability to increase income and lower operational costs may also make a building more attractive to investors who buy and hold property, said Gallagher.

Before the mandate, some California municipalities had already called for the installation of solar and storage systems in commercial buildings. For example, the city of Fontana enacted new regulations that aim to address air pollution from logistic centers. They include provisions that call for exclusive use of solar energy to power warehouse developments larger than 400,00 square feet–except for refrigeration functions.

How Commercial Property Owners Can Learn More About the Mandate

Often, it’s time-consuming for building owners to sift through laws and building codes to learn how to benefit from them. California commercial property owners can find out how to take advantage of the new California storage mandate by visiting www.qcells.com

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